Dalata trading at 45% discount to property – Jefferies report

Dalata Hotel Group’s stock are being pushed as a “buy” rating by Investment bank Jefferies, which has highlighted that the company is trading on the market at a 45 per cent discount to the net value of its property.

Investors are also not appreciating its strong balance sheet and UK growth prospects, according to the bank.

The move comes as Irish hotels, bars and pubs prepare to reopen on Monday after more than three months of lockdown amid the Covid-19 pandemic. Dalata, led by chief executive Pat McCann, had temporarily laid off more than 3,500 staff as it closed hotels across Ireland and the UK in March, though it has continued to provide accommodation to frontline workers and other groups in some hotels.

“We like Dalata’s structured business model and think the company is well-positioned to grow in the UK and take advantage of the gap in the three- to four-star hotel market,” Jefferies said in a report on the European hotels market on Thursday, noting that the UK accounts for 80 per cent of Dalata’s development pipeline.

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“We believe Dalata is likely to gain market share from the independent hoteliers [weaker balance sheets] as trading becomes more challenging.”

The bank said that Dalata's valuation is supported by its strong base of 29 group-owned hotels, mainly operating under the Maldron Hotels and Clayton Hotels brands, which have a net asset value of €1.1 billion. The shares are trading at a 45 per cent discount to this, it said.

Dalata, which floated on the stock market in 2014, also has a leasehold interest in 10 other hotels and manages a further three.

Cash reserves

Jefferies estimates that Dalata has access to enough cash to keep it going through 14 months of lockdown if it had to, and could tap even more liquidity from carrying out further sale and leasebacks on hotels.

Jefferies €4.50 price target on Dalata’s stock points to more than 55 per cent upside from current trading levels.

Still, 2020 is set to be a write-off from a profitability point of view for the industry, according to Jefferies estimates. It sees Dalata sliding to a pre-tax loss of €82 million. The company reported a €89.7 million profit in 2019.

“We see weak demand for summer 2020, with consumers concerned about international travel (health and financial reasons) and having already made alternative plans,” Jefferies said of the industry. “The road to recovery will take time with consumers reluctant to book international travel for 2021.”